Good afternoon, ladies and gentlemen, and welcome to Valmet's fourth quarter 2023, as well as the full financial year 2023 result publication webcast. My name is Pekka Rouhiainen, I'm the Head of Investor Relations here at Valmet, and the speakers today will be Valmet's President and CEO, Pasi Laine, and CFO, Katri Hokkanen. After the presentations, you will have the chance to ask questions over the phone lines from the presenters. Without further ado, Pasi, please go ahead.
Thank you, Pekka. Welcome. So 10 years have gone, and now it's time to look how the numbers look for the 10th year of Valmet. So we are saying that orders received remained at previous year's level and amounted to close to EUR 5 billion, and comparable EBITDA increased to EUR 619 million. So first, I'll go through the 2023 in brief, then some words about the segments and business lines, then Katri will go through the financial development, and I will go through dividend proposal guidance and short-term market outlook. First, 2023 in brief. Like I said, orders were close to EUR 5 billion. Net sales increased to EUR 5.5 billion, and backlog, in the end of the period was about EUR 4 billion. Our comparable EBITDA increased to EUR 619 million, and margin were 11.2%.
So it's a record, net sales in Valmet's history, it's record EBITDA in euros, and it's also a record EBITDA margin in Valmet's history. So good year. And now, after we have made the mergers and acquisitions, gearing was 40%, so a little bit higher than it used to be before the, before the acquisitions and mergers. But all in all, good numbers. Then a little bit more about them. So orders received were divided in Services, Automation, and Process Technologies, so that about EUR 1.8 billion came from, from Process Technologies, then Services and Automation altogether were, were about EUR 3.1 billion, Services being EUR 1.76 billion and, and Automation, EUR 1.34 billion.
Net sales by segments was such that net sales from Process Technologies was EUR 2.4 billion, and net sales from Services, EUR 1.7 billion, and Automation, EUR 1.3 billion. And EBITDA was such that our Process Technologies contributed EUR 110 million, Services, EUR 312 million, and Automation, EUR 248 million. So nice distribution of the business, the orders received, revenues, and comparable EBITDA. In the end of the period, we employed about 19,000 people.
Then here, we have the graphs we have been proudly showing and continue to show proudly. So orders received was a little bit under EUR 5 billion. There is a decline compared to last year. In net sales, we grew to EUR 5.5 billion. It was, of course, nice growth.
So we started from EUR 2.5 billion, and now we are a EUR 5.5 billion euro company, so we have over doubled our net sales over the years. Comparable EBITDA was 619. We started from 50, and since then, every year, we have been able to improve our comparable EBITDA euros. And comparable EBITDA margin, we started from 2%, we ended up now in 11.2%. So last year was an exception, but all the other years we have been able to improve our EBITDA margin as well.
So all in all, I think, all the Valmetians who have been working here for 10 years and last year can be proud of the achievements, and I would like to thank all the Valmetians now for the excellent work they have been doing over the years to develop the company further. You can be proud of your achievements. Orders received, like I said, a little bit under EUR 4 billion, so EUR 4.5 billion, EUR 4.955 billion. Then here you see also the geographical distribution. So Asia Pacific was almost EUR 700 million, China over about EUR 640 million, Europe declined as well to EUR 1.85 billion.
South America was growing to EUR 500 million, and North America stayed at last year's level, being EUR 1.27 billion. So we have seen the decline in capital markets. We are coming back late, and that's why some of the areas have had smaller order intake than a year ago. Then one thing we are also proud of is the development of our stable business. So we started with a company where we had services order intake of a little bit over EUR 1 billion, and now our services order intake was EUR 1.76 billion. Then we acquired systems, have been growing systems, and then we merged with Neles, so we have—we've been growing Automation business from nothing to EUR 1.34 billion.
Now stable business total orders received is EUR 3.1 billion, and this is, of course, the big change that has taken place in Valmet, and we are very, very proud of the development. We have been calculating that organic growth over the years is roughly about 7% on the businesses we have had and then businesses we have been acquiring. So good development. Backlog is almost EUR 4 billion, and I would say that it starts to be on a more normal level. So this end of last year's EUR 4.4 billion was too high, so delivery times were getting too high in many of the businesses, and now the level, roughly EUR 4 billion, is a good level.
We remember all good years, 2019 and 2020, when we were at the EUR 3.2 billion level, and then we were happy with the backlog as well. We have to understand that we are now coming out of the exceptional years and that means that the backlog will be getting smaller as well, and delivery time shorter. Now, we are saying that about 85% of backlog is expected to realize net sales during 2024. Then some words about the acquisitions in 2023. We started the year by making NovaTech Automation's Process Solutions acquisition in the U.S., about $18 billion....18 million dollar business, and we completed that January the 3rd.
There, the idea was to get so-called batch control system in our offering, and that's what we achieved, and the progress with NovaTech Automation has been good. Then big thing was, of course, the acquisition of Körber business area Tissue, which then became Tissue Converting business unit in Valmet. There, we are saying that the 2023 net sales in the total business was about EUR 300 million, and out of which we booked in orders, out of which net sales we booked about EUR 76 million in our books. It employs or we employ now about 1,170 specialists mainly in Italy, Brazil, US, China, and Japan. The acquisition was completed on November 2nd.
Integration has started well, and the atmosphere inside Valmet and inside Tissue Converting is very good, so, so that that has started in very positive manner. And then we have process of finalizing the acquisition of Siemens Process Gas Chromatography business, and we are expecting now that the acquisition will be completed April the 1st, at the earliest. Then we have also made a contract to acquire Demuth, which is, which would be strengthening our Brazilian operation for wood handling, and their annual revenue is about EUR 20 million-EUR 30 million. So a lot of activity in acquisitions in 2023, and of course, the work continues in 2024 to make this acquisition as successful as our early acquisitions have been. Good work by the organization again. Then some words about the segments and business lines. So first, Services.
Services order intake stayed at the last year's level, so last year, or 2022, order intake was EUR 1,756 million, and now it was EUR 4 million more, so EUR 1,760 million. So roughly EUR 20 million of that is coming from Tissue Converting. So without Tissue Converting, the, we would have had a decline of 1%. With Tissue Converting, the order intake stayed at last year's level, and I think it's a good achievement. You all know that our customers are facing quite a lot of challenges with their production volumes, and I think it's very good achievement that, that we were able to keep our order intake at last year's level, which year was very good, like you here see when you compare between 2021 and 2022.
So there was a lot of growth in 2022, and then we were able to keep that level last year, so that was good. Net sales was increasing as well, and then I'm very, very happy that the profitability grew to 17.5%, and euro-wise, it was EUR 312 million. So it's good, good profitability development in euros and in EBITDA margin as well. So well done by the areas and our Services business line. Services, like we have had a custom to do, so we give a little bit more data after all the full years, and here are some data about Services as well. So here you see what's the distribution of different business units, so orders received by business units.
You see the orders received by, by area, and you see also the orders received by the customer segments. I don't have here the comparison numbers, but, but you can analyze the numbers more in detail and compare them to with last year, and then you can have maybe some questions. But this is to help you to understand how, how our Services business have, have been developing, last year, and you can compare that with last year with the previous years as well. Then in Automation, like I said, order intake has ended up to EUR 1.34 billion, and net sales was a little bit lower. Comparable EBITDA was EUR 248 million and being 18.6%. So we are happy with the performance in all due respect.
Orders received was developing well, net sales was developing well, and EBITDA euros were developing well, as well as EBITDA margin, so good execution of business management by Flow Controls and Automation systems. In Flow Controls, order intake ended up in EUR 789 million, growth from last year by EUR 17 million, and net sales ended up in EUR 777 million, so growth by EUR 60 million compared to last year. We are very happy with the performance of Flow Controls, and then we can now proudly say that we have completed the annual and reached the targeted annual synergies of EUR 25 million on run rate basis. So, Flow Controls organization has been doing good work there, and of course, Legacy Valmet has been doing good work.
So we have achieved the cost synergies, and we have achieved the sales synergies one year before what we promised when we merged with Neles. So good development here as well. Then here we have the same distribution. So you can see that about 64% of the order intake is coming from MRO and Services, and Projects are contributing to about 20% order intake, and then valve controls and actuators, about 16% of the business. Industry-wise, 28% is coming from Pulp and Paper. The biggest end market is refining and chemicals. Renewable energy and gases is about 10%. Metals and mining has been developed well, being 10%, and other industries, 9%. So nice distribution of customer segments here as well. Then Automation Systems, nice growth.
Order intake ended up at EUR 551 million, so nice growth compared to last year. Net sales has been growing nicely as well, compared to last year, ended up to the same number, EUR 551 million. And our Automation business, systems business has been developing well all of the years, like you see here, that we started from EUR 337 million, and now with the one small acquisition, NovaTech, we are now at EUR 551 million. And then the journey continues here with the acquisition of Siemens gas chromatography.
Business customer-wise, about 70% is coming from Pulp and Paper, 30% from energy and process, and then distribution by product is such that about 57% is coming from DCS, or Distributed Control Systems, and quality management system is about 23%, and analysis and measurement, about 20%. And now, of course, these two graphs will change quite much when we complete the acquisitions of Siemens gas chromatograph. So a lot more business for energy and process, and then one product group here, more in analysis side. Then Process Technologies. So order intake was a little bit over EUR 1.8 billion, down quite much compared to last year, EUR 500 million. Here we have to look a little bit along the trend.
So when we go to 2018, 2019, 2020, we are almost at the level where we were then with the order intake. So it's of course, lower order intake, but it's nothing dramatic in order intake-wise. And I'll come back to years 2021 and 2022 in business line graphs. Net sales was EUR 2.4 billion, and we generated EBITDA EUR 110 million, which was 4.5%. We still have some challenges in selected Pulp Projects, and then we had some issues and cost overruns, inflation and cost overruns in some Tissue Projects. The positive side here is that now we can say that the energy process project challenges are over.
So we started to say that we had challenges then when the war in Ukraine started, and now we can say that our energy projects are performing well and portfolios also were healthy. So one issue has been solved. Pulp and Energy business line order intake was at EUR 854 million, down compared to last year's, but it's at the level where it has been several years. Like we have been saying, we have been preparing ourselves for this order intake level, so our capacity cost in Pulp and Energy is low compared to compared to order intake and net sales. Net sales last year was one billion and sixty-seven million. In Pulp and Energy, we could actually change the name now to Energy and Pulp, because two, two years in a row, actually, energy has been bigger.
So 57% of the order intake is coming from energy, and 43% was coming from Pulp. So this biomass boiler market is an important market for us and has been performing well. And like I just said in an earlier slide, now the execution of the project is also good and has overcome the challenges we got with the inflation coming from the sudden events in the marketplace. So a big part of the market is single island products, so complete mills was 22% of the market. So quite often we talk quite a lot about the complete mills, but like we have been saying, this single island product, so little bit smaller projects is very essential and a big part of the business. Paper Business Line.
Here you see very well what has happened, and so our order intake was somewhere at EUR 700 million level. And then it jumped to EUR 1 billion, and then we were very proud of EUR 1 billion level. And then in 2022, 2021, we were surprised that the order intake went to EUR 1.6 billion. And 2022, it continued to be at a good level by almost level of EUR 1.3 billion. Now, it's EUR 1 billion. And what we still might come a little bit later to the outlook, but what I want to point out here that two years, three years back, we were very proud of EUR 1 billion level, and we were then saying that the level is good.
We have been careful with capacity cost here as well, and then order intake last year doesn't include very much of Tissue Converting. So maybe I remember correctly that it was EUR 40 million, but Katri can correct me if I said wrong number. So almost of all of that EUR 1 billion came from the existing businesses. Net sales was EUR 1.3 billion, and it's, of course, the consequence of good years in 2021 and 2022. Business-wise, interesting is that half of the business came from board. Last year, it was a lot of higher percentage. And we see good activity in Paper machine, so 80% were for printing Paper machines. So there are still markets where printing Paper machines are needed.
We have good offering there, and we have good engineering team, and the same team is doing the board machines as well, and same manufacturing units are doing the same both machines. But the Paper is also a good market for us. Tissue, I'll come back to outlook later on, but tissue order intake grew last year, and 33% of the order intake came from tissue, and that includes also some part of Tissue Converting. But in a way, this situation is now healthier, so we are not depending only on packaging material as much as early. Then market was dominated by new installations. Rebuilt market was not that strong, and single product was quite small part as traditionally.
So big part of the business came from new markets, or new installations. Good. And then still one extra slide. So again, comparing to 10 years back, our orders received was then about EUR 2.2 billion. EUR 180 million, a little bit less than EUR 200 million were coming from customers outside Pulp and Paper. And now, the order intake outside Pulp and Paper was EUR 1.3 billion. Our order intake from Pulp and Paper was less than EUR 2 billion, and now it was over EUR 3.6 billion.
So the message here is that we have believed in Pulp and Paper, and we have been growing organically and supporting that with acquisitions as well, and we believe that it has been good market and continues to be a good market. At the same time, we have been expanding the customer industries with acquisitions. So first step was, of course, Automation business, and then big step was Flow Controls, and then organic growth of energy as well. So now, about EUR 1.3 billion of the order intake is coming from businesses outside of Pulp and Paper, which then, of course, increased the diversity of our business portfolio. The boilers, which are located in Paper mills and Pulp mills, are calculated here in energy.
But that, the amount of that varies year to year, but slowly, Valmet is also becoming a company, integrated company with more diversified, customer base. Good. Now, I let Katri to talk. I didn't touch the water.
Hello, everybody, on my behalf as well. Good to be here today, and I also want to thank all the Valmeteers globally for last year, and send my special thank you to the finance team for closing the year 2023. And I will walk you through the financial development, and I will start from the quarter. Orders received decreased close to EUR 1.2 billion. Net sales remained at the previous year's level and amounted close to EUR 1.5 billion. Order backlog was close to EUR 4 billion, and Comparable EBITA decreased to EUR 183 million, and the margin was 12.2%. Gearing was 40% at the end of last year.
I will highlight only the full year numbers here, since I had the quarterly numbers there, but as Pasi already said, order intake was close to EUR 5 billion, net sales record high EUR 5.5 billion, Comparable EBITA record EUR 619 million, and percentage was 11.2%, which was also a record, so we are very proud of the result. I will come back to the other numbers later in my presentation. We have made some adjustments to the presentation, so we have now segments in the separate slides. I hope that you will find this useful. And I will start from services. And, Q4, actually, the market was more active than in Q3, and orders received end up to EUR 404 million. And there was EUR 21 million of Tissue Converting inside of this number.
However, the changes in the FX rates decreased the orders by approximately EUR 14 million. Net sales was EUR 508 million, so that was flat compared to the comparison quarter, and Comparable EBITA was EUR 91 million or 17.9%. When we look at the full year, order intake was close to EUR 1.8 billion, so that was at the same level than the comparison year. Net sales was also close to EUR 1.8 billion, and that was 11% higher than the comparison year. Comparable EBITA was first time ever over EUR 300 million at EUR 312 million, and the margin was 17.5%, so very good development in Services segment.
Moving to the Automation next, and starting from, from the quarter, order intake was EUR 319 million, net sales was EUR 375 million, and comparable EBITA, EUR 79 million. So all of these numbers were on, on the same level than in the comparison quarter, and margin was 21.1% for the quarter. If we look at the full year, so actually orders received and net sales both reached this EUR 1.3 billion level, and here it's good to remember that Flow Control was in our numbers since the second quarter in 2022. Comparable EBITA was two hundred and forty-eight million, and the margin was 18.6%, so good development here as well. Next, Process Technologies. Order intake for the quarter was EUR 432 million, and as Pasi said, Tissue Converting impacted this by EUR 40 million.
Net sales was EUR 615 million, and the Comparable EBITA was EUR 25 million for the quarter, or 4.1%. And as already mentioned, EBITA decreased as the margins in some Pulp Projects were impacted by cost inflation, and also due to cost overruns in some Tissue Projects. Then for the full year in Process Technologies, order intake was close to EUR 1.9 billion, and that was 21 million low... Sorry, 21% lower than the comparison year. Net sales was close to EUR 2.4 billion, and Comparable EBITA, 110 or 4.5%. And of course, it was a disappointment for us that the profitability decreased. We also have the traditional segment key figure slide on the presentation. I will not repeat the numbers anymore, but want to highlight other from here.
It was -EUR 13 million for the quarter, and for the full year, it was -EUR 50 million. Then a few words also about Comparable Gross Profit and SG&A, and Comparable Gross Profit was 26.4% in Q4, and stable business represented 59% of the volume. And when you look at the chart on the left-hand side, the gross profit has been developing over the years, and last year we were at 25.8%, or EUR 1.4 billion. On the SG&A side, comparable SG&A was EUR 901 million for the full year, and that represents 16.3% of the volume. And as you can see from the chart, we have been managing SG&A costs well over the years.
Cash flow from operating activities was EUR 352 million, and capital expenditure amounted to EUR 125 million. Net working capital was EUR 191 million, and that was 4% of the orders, and the acquisition of Tissue Converting increased net working capital by approximately EUR 92 million in the fourth quarter. If we compare the net working capital to the year 2021, it has increased mainly in capital business, and also Flow Control and Tissue Converting have been impacting it. Today, our mix contains much more stable business, which typically ties up more net working capital. Net debt was EUR 1 billion at the end of last year, and gearing was 40%, and the increase here is related to acquisition of Tissue Converting business.
Our net debt to EBITDA ratio increased compared with 2022 and was 1.46. The average interest rate of our total debt was 4.5%, and net financial expenses amounted to EUR 34 million. Capital employed was close to EUR 4.1 billion, and integration of flow control as well as Tissue Converting have increased this number. A comparable return on capital employed was 15%. Adjusted earnings per share decreased to EUR 2.28, and this was due to higher net financial expenses, as well as lower items affecting comparability. This was my part of the presentation. I will give the floor back to Pasi. Thank you.
Thank you, Katri. Now it's time for dividend proposal guidance and short-term market outlook. Now I'll start with the dividend proposal policy. Our policy is saying that we should pay at least 50% of the net profit, and our board of directors' proposal to the annual general meeting is that we would be paying, or the company would be paying EUR 1.35 dividend per share, which then would represent about 70% payout ratio. The dividend shall be paid in two installments, and here you see the graph. So since 2013, or from year 2013, we paid EUR 0.15, and then every year we have been able to increase our dividend payout.
Now if the proposal is approved by the AGM, then the dividend from last year is EUR 0.35. We are, of course, very proud of being able to propose again an increasing dividend to be paid to our shareholders. Then guidance and short-term market outlook. If I start from the short-term market outlook. In services, market is quite much the same what we said in after quarter three. We see more sales activity now compared to third quarter. After what we said, we see more sales activity than in the end of the year, end of the summertime. Markets are more stable in a way that all the markets are having activity, and but it's not at the level where it used to be.
That's why we are saying that. Okay, this I have to take little bit other way, because the market is at the level order intake was at the level of 2022, and now we have some units where we have a little bit challenges with capacity utilization, so we have over capacity in some of the units. So we are there in the borderline, whether it's good or satisfactory, but this is the market itself has shown more activity in fourth quarter than we saw in the third quarter, like we said, after third quarter. Flow Controls market continues to be active, so it's good market. We are a niche player, and quite much of the order intake development depends on our own activity.
So we have still big market to be served, and order intake was at a good level for the whole year, and so it continues to be. In systems business, you saw that order intake has been growing, and the market continues to be the same, and we keep the outlook at good. In Pulp, like you saw, order intake in Pulp was about 45% of the Pulp and Energy. So we have the same situation as earlier, that customers are investing to single islands modifications, but we are not seeing big projects moving ahead quickly in the beginning of this year. In energy, market was last year good, and it continues to be good.
In Paper and board, the market continues to be satisfactory and like I said, more Paper activity than in couple of previous year, but then board activity continues at the satisfactory level as well. This year, we still keep at the satisfactory level, even if the order intake was growing compared to the previous year. Then we are saying the guidance for 2024, that Valmet estimates that net sales in 2024 will remain at the previous year's level in comparison with 2023, and Comparable EBITA in 2024 will remain at the previous year's level or increase in comparison with 2023. So first, if we talk about the net sales, so of course our order intake was lower than net sales last year.
But then we have to remember that we made a sizable acquisition of Tissue Converting, and of course, now we will have the full year's net sales recognition from Tissue Converting for 2024, and last year we had only two months. So that will impact the net sales. And then in EBITDA, we are saying that it's either on a previous year's level, so flat or increasing. Our track record is that we have been improving our EBITDA year after year, and that's of course the target setting. And we are now guiding that with the backlog and with the business portfolio what we currently have, we are having EBITDA either at flat or increasing.
Of course, the Tissue Converting will have an impact as well in EBITDA euros. And I'm sure that there will be some question about it later on, but this is the guidance what we have now. Net sales on last year's level and comparable EBITDA either at the previous year's level or increasing comparing to previous year. Good. Thank you, and now, Pekka.
Thank you, Pasi, and it's now time to move on to the Q&A session. So I ask Katri also to join Pasi here in the front, and it was reported that there were some technical issues during the call, but they should now have been resolved, so hopefully everything is working now well from here on. But let's now move on to the questions. So operator, I hand over to you.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad.... The next question comes from Antti Kansanen from SEB. Please go ahead.
Yeah. Hi, guys. It's Antti from SEB. A couple of questions from me. I'll take them one by one. So first is coming back to the sales guidance for 2024, and you, Pasi, you referred to your orders being down, but you still expect a fairly similar contribution from the year-end backlog. You also should benefit from MFA. I guess you have a couple of that have not yet closed, but you expect to close them in during 2024. So this suggests that you don't expect that much from the business that you usually book during the year, which is largely on Services and Automation. So could you comment a little bit on that one?
So first, I think in guidance, I'm not a lawyer, but I think we can guide only the businesses which are now part of Valmet, so we can't, in guidance, take into account the businesses which in the future will be part of Valmet. So like Siemens gas chromatograph impact cannot be guided now, it can be guided only after. So we have our backlog. We have now told you how big part of the backlog will be recognized as revenue this year, and you can calculate from there the book-to-bill, what is needed. But then of course, in the business portfolio itself, we target to grow services like we have been growing all the years. We target to grow Flow Controls like we have been growing, Automation systems the same.
Then, of course, on top of that will come the revenue recognition from Tissue Converting as well. Then I think it's clear for everybody that Process Technology revenue, without the Tissue Converting, most probably will go down. So in Pulp and Energy, if the order intake was EUR 850 in earlier years, it has been higher. So then most probably the overall revenue recognition in 2024 will be less. The same applies to Paper without Tissue Converting. So what I'm saying is that we are actually confident in stable business contribution, and then revenue recognition from Process Technologies will be smaller now because order intake last year was less than previous years.
Okay, makes sense. Then the second question is on the Process Technologies margins on Q4, and it was a bit weaker trend again. So could you comment a little bit about the issues you had with the Tissue Project execution? Is this something that we should take into account going forward? I mean, the Pulp and Energy issues have lasted for a while, or was this more like a Q4 isolated impact?
Yeah, I can start, and you can complement.
Mm-hmm.
So, what is the fact that the project management in some of the Tissue Projects haven't been good enough, and the inflation has now impacted the tissue profitability with the delay, and you could see it in our numbers. And of course, we are taking all the measures needed, and we always recognize the project revenue with the most probable outcome.
Mm-hmm. And then if you compare a little bit between Pulp and then tissue, so Pulp Project last 2.5-3 years, and Tissue Projects go through the delivery in 6-9 months. So. And last year's order intake was reasonably good, so then from there, you can add one line, which I'm not saying.
Okay. Any comment on how much of those Pulp Projects still last in 2024-
No
... size or length or?
No, no, no, any comments on that. We haven't given the backlog figures for business lines and of course not for business units either.
But we are doing the best we can, of course, to improve as soon as possible. Yeah.
Yes.
Okay. Then, last one from me is on the working capital, and, and Katri, could you remind going forward, what is kind of a, with the new business structure, a reasonable working capital to sales levels in a few years' time, that's your ambition, or how should we think about 2024?
Yeah. So we are not giving... We don't have a target for any specific balance sheet items, as you know. But of course, it being positive at EUR 191 million, it's a big change compared to the levels that it has historically been. Of course, Tissue Converting had an impact of EUR 92 million, so that was one reason, but the mix has changed. So we have much more stable business nowadays, and capital project advanced payments can have a really big impact, even between the months and the quarters. So of course, all of those elements have to be taken into account. But we have been also saying in the past that the inventories have been on elevated level, and that's the situation still today.
We have many actions ongoing in the organization in all fronts, but the fact is that it takes some time to get that visible also in the numbers. So the work continues there.
Okay. Thank you.
The next question comes from Sven Weier from UBS. Please go ahead.
... Yeah, good afternoon, and thanks for taking my questions. I also go one by one. The first one is on service, Pasi. In the last call, you were so kind to give some regional color, because I think you said that, you know, North America and China were showing signs of improvement during Q4. I was just wondering if you have that continuing, or how do you see the current situation? That's the first one. Thank you.
Thank you. I started to feel time pressure in my presentation, and I skipped that one, so thanks for coming back to that swing. So, China was doing well, so they almost reached the numbers they had in 2023, and 2023 was good. So, and so we still see more activity in China. Asia Pacific was flat compared to last year, so also improvement in the latter part of the year. Europe was flat as well compared to last year, which was positive. Then North America did the... There was activity but not enough decisions, so there I was a little bit too optimistic in after third quarter. And South America had so good year last year that it can't, they and there was one extraordinary order, so they can't continue at the same level this year.
Activity is in a way quite uniform currently in all the market areas, so I wouldn't say that any of the market area is less active than the other one compared to a normal situation.
Yeah. Thanks for the color, Pasi, because I'm also asking because you said you're aiming to grow service revenues, but your book-to-bill was negative last year. So I was just wondering, do you see that more second half loaded or more steady development?
No, well, now it's—there are many things which are moving, and one thing which is moving is the delivery time. So in 2023, customers were... Sorry, 2022, they were ordering earlier because there were longer delivery times. And now when the delivery times are getting short, the customers are learning it as well, and then our book-to-bill in a year will increase compared—most probably increase compared to previous years or, and will be more in a normal situation.
The other question I had was just on the Capital Equipment Business. And obviously, sales will, will decrease this year, but, you know, I, I was just wondering in terms of the load of the factories, I mean, for now, I think you can handle this well. You mentioned capacity costs as well under control, but is there kind of a timing when the new orders need to start to improve, that the utilization issues don't become even worse? Or are you, are you fine with the current order intake from the-
No, no. We have done some measures already in tissue, tissue machines and in Pulp and Energy to safeguard that capacity cost is well managed. So, a big part of our capacity is in Finland, and here it's actually very easy to adjust the capacity cost because we have that kind of temporary lay-off system. Currently, we have a good workload in most of the units, and then, of course, it means that there needs to be a good focus on getting new orders. But in a way, that's normal as well, that all the time you have to win new orders in capital business, so... And like I said, in Paper side, we have to now adjust back to the years before the extraordinary year.
EUR 1 billion order intake is good level for Paper Business Line.
Then maybe on the cost overruns in Pulp and in tissue, I mean, I know you don't give any more details in general, but I was just wondering, should we at least assume that the headwind to earnings will be lower this year than last year?
Of course, the backlog, which we inherited from the years before and decisions before, before Ukraine war and inflation, is becoming small.
Very finally, if I may, just a question for Katri on, on PPA. I was just wondering if you could give us a guidance on, on the PPA-
Yeah
... for the acquisitions that you've done so far.
Yeah. So, amortizations were roughly EUR 25 million in the fourth quarter, and this was impacted already a little bit by Tissue Converting, and the amortization going forward is roughly EUR 28 million in the coming quarters.
Okay. Thank you both. I go back in line.
The next question comes from Panu Laitinmäki from Danske Bank. Please go ahead.
Thank you. I have two questions. First, on the comment that you saw higher activity in Q4 compared to Q3. So, in which businesses was that, and, does it mean that, like, are you now more optimistic on the demand outlook for the next six months than you were at the time of the Q3 report?
No. We saw more activity in Services and in Automation. Automation order intake in third quarter was quite low, and it rebounded. And then, for coming quarters, we gave the guidance, and then one has to be careful, not now with the first quarter expectations, because in Services we had extraordinary good quarter one in year 2023. So I think don't expect miracles in quarter one, but the guidance we gave is for coming six months, that we see good to satisfactory demand in Services, and then we see also good outlook for Automation Systems and Flow Controls.
Okay, thank you. The second question is on the Process Technologies outlook, where you have satisfactory outlook for both Board and Pulp. So just kind of thinking, what kind of order levels could we expect going forward? Would you think that in paper, the kind of EUR 800 million annual run rate that we saw in the second half would be kind of bottom, and then it could get better over time? And same question for Pulp and Energy. I mean, you had EUR 850 million last year. Energy looks stable or growing, and then Pulp was at the lowest level in 10 years. So is this like the floor and it gets better, or how should we think about that?
No. First, if I start from energy, so the outlook last year and previous year, order intake has been good and we continue to have the outlook as good. And then in Board and Paper, we have reduced the order intake or the outlook to satisfactory. And there is the dilemma that with the same volume what we have now, three years back, we were saying actually that it was good level. And so it's not very logical now, but there were these two extraordinary, ordinary years. In order intake, we can't, of course, give a guidance that what kind of expectations we have for the year, but the only thing what I want to remind is that there is always quarterly variation in Process Technology business.
So some quarters are a little bit lower in order intake, and some are then higher. And then I would, or at least what I'm doing, I'm following the 6-month and 12-month trends and not only one quarter. But unluckily, I can't give a guidance that what kind of expectations we have the order intake for the Process Technology businesses.
Okay, thank you.
The next question comes from Johan Eliason from Kepler Cheuvreux. Please go ahead.
Yeah, hi, it's Johan at Kepler Cheuvreux. I was wondering a little bit about the competitive landscape going forward. I think your Austrian competitor talked about being a margin focus for their Pulp and Paper business going forward, which I guess is positive in a way. But they also talked about gaining market share in Board and Paper. Where would you see that you face some competition? Is it Board in some geographies, or is it tissue? And then how confident are you on your position in those segments? Thanks.
Johan, how would I say? So of course, we have to work with our competitiveness all the time. And now, what I have been saying to our organization is that of course, there will, we have to take care now of our competitiveness, but luckily, we don't have any extra other topics. So we have normal supply chain situation, we have inflation, which we can foresee. We hope that there is no extra wars coming, and so on. So the whole management can focus on improving our daily and weekly and monthly operations. So that's where from the competitiveness, we will start from. In Board and Paper, we are competing against Voith, so there is one competitor.
When discussing with customers, it's clear that it's Voith and us. But I'm not commenting then anything about on Andritz on that market. Then in tissue, like we have been saying earlier, there are several players. There is Voith and Andritz, ourselves, and some others as well. So there, the market is more dynamic, and we are the one of the suppliers, but we are the biggest supplier, but not as dominant as in Paper and Board side. But we continue to believe that we have good technology, we have the best R&D centers, we have cost-competitive delivery chain, we have very good engineers, we have very good startup engineers. And we have good customer relations, so that's...
On those ones, and the advantage what those give in our competitive position, we believe in future as well. It's not only one or two topics.
Good. And in terms of pricing, I mean, it's always a bit cyclical in this fairly concentrated market, but how do you see that going forward?
... like we have been saying that in, especially in Pulp and Paper, or Pulp, when the market gets not that active, then customers are focusing on implementing smaller projects, and there it's easier to differentiate with the technology and supply. And the bigger the project is, the more it's commodity. So actually, the projects are getting smaller, but it's easier to differentiate. And in Paper side, we are competing with Voith and we, of course, try to keep our profitability at the level which we have been targeting.
Good. And finally, you have planned to retire. Any news on the replacement process you want to share?
So retirement happens in Finland when you are 65, so I'm getting only 61, so I have to find 4 years time, something to do before I can retire. I'm not in a position to say anything. I'm sure that our Board is actively looking for my successor, and I'm sure that immediately when they have found a good candidate, they will come out with the nomination.
Okay. Thank you very much.
The next question comes from Mikael Doepel from Nordea. Please go ahead.
Thank you, and good afternoon, everybody. Just a quick follow-up on the service side. So I'm listening to your earlier answers, and if I understand you correctly, you are mainly referring to what happened basically in Q4 compared to Q3 and how the year ended. But I was wondering if you could say anything about what you're seeing now in the early parts of this year. You mentioned North America not delivering as you expected. Has that improved now? Has the destocking, the restocking... Any color you can give on the early parts of the year on the service business would be helpful.
I tried to give a color that and that earlier in of the third quarter, we were saying that we see more activity in activity improvement in China and North America. And now I tried to say that actually the activity level is uniform in all the units, and it's very difficult for me to say that one would be more active and the other less active. So that's. And then we, of course, all know that the utilization rates of the customer assets have been improving, and some of our customers have been saying that they see, in a way, little bit improving demand for their end products, which might in the end latter part of the year have a positive impact to us. But currently, I can't distinguish between the areas.
They have quite much the same kind of activity level. Then I was saying that be careful that last year, quarter one was exceptionally good.
Yeah. No, absolutely. That's understandable. And then a question on the guidance. So basically, you're saying revenues flat-ish overall, and then I guess you aim to improve the margins basically across all business areas. I'm just wondering if you could talk a bit about the building blocks to be able to do that. So what would drive your margins higher than which I assume you are in?
No, it's the same building blocks we have had up to now. So our EBITDA margin was only 12%—okay, I should not maybe say only. It was 11.2%, but our target is 12%, so we need to improve profitability in EBITDA margin in all the businesses. So we have to improve it in Automation, we have to improve it in Services and Process Technology to reach that 12%, which is the minimum of our target setting. And we have been saying earlier as well that it's not one or two miracles we have to implement.
It's a lot of things, thousands of small actions, trying to push the sales prices up, develop new products with, with, better competitiveness, and then reduce cost base on the existing level products, and then improve our internal processes from project management, sales to delivery, improve procurement, reduce quality costs. So all those things have to happen for us to improve profitability. And then, of course, one important topic is SG&A management, which, Katri mentioned earlier.
Right. Right. And just on that, on that point, finally from my side, just wondering how you're seeing the price cost equation overall going into 2024. So, do you see a need to still raise prices in some certain segments, or would you say that you are well covered given the cost deflation that you're seeing now in terms of pricing of your products and services?
Now, we see that the salary inflation continues, and of course, big part of our costs are in salaries, and then there might be a deflation in some of the materials, but it might be that that's then actually compensated by the inflation in the work what we buy. So we have to be very careful with all our cost actions to try to find more cost-effective supplies and companies we work with, and then, of course, be very careful with our internal costs.
Right. Okay. Thank you very much.
The next question comes from Tom Skogman from Carnegie. Please go ahead.
Yes, hi, good afternoon. I have a couple of questions. I'll take them one at a time. First of all, I've just noticed in the Pulp and Paper segment, your customers, some are still doing okay, while some are really, really struggling. So do you see different behaviors among them that, for instance, decision-making is moved to the head office, making it more difficult to close, also kind of smaller, let's say, Automation deals or something? Do you see any kind of worrying sign among certain customers that are really struggling now?
We saw it actually happening in quarter two, beginning of quarter three, and then we saw that also in our Services order intake and Automation order intake. But that was that kind of actions customers implemented to make sure that the cash flows are good for year 2023. Then generally, we have so vast customer base that always we have customers who are centralizing decision-making, and then some are decentralizing. So I don't see there actually any change in the whole portfolio of customers. So we have huge amount of customers, and some might be centralizing currently, some not.
Okay. And then in Pulp, of course, now we have seen that, you know, profitability has been, you know, hurt for, you know, already quite some time, and you have at least not gained market share in this business. So, what can you do to improve the competitiveness in Pulp? Is it mainly just about project execution, or do you need to bring new innovations to the market? Or what do you think you need to do to regain, or to go back to number one position in Pulp also?
Uh, uh, I-
Do you want to do that even?
Actually, our market, according to our statistics, market share was roughly 50/50 last year. So we have been gaining market share from Andritz last year. And like I've been earlier saying, when the market is very active in South America, where the Austrians want to do big EPC projects, then we are suffering on market share. But currently, at least according to our statistics, we are roughly on par with Andritz. So which then means that we gained market share last year.
And on the way of doing business and to improve profitability there?
No, no, no, now we are executing small- to medium-sized projects more than bigger, bigger, bigger, bigger mill-wide contracts.
But do you, do you need to bring new products like you did in Board machines some 10 years ago, you know, to improve competitiveness? Or, or is it just about project management to avoid cost overruns to, to improve market?
We are, of course, all the time developing, offering also for all the Process Technologies. We have R&D centers and pilot machines for all the parts of Pulp mill. But we will be bringing some new things on the market as well, but we haven't launched them yet, so I'm not saying anything. But of course, we all the time work on our competitiveness and also on the performance of the product offering what we have for Pulp.
Then a question to Katri. If all these acquisitions that you have presented but not closed, if they are closed, what would the kind of rolling, you know, PPAs and, and let's say, net financial costs and taxes be by the end of this year on a quarterly level? How much will they grow? It's a bit hard to-
Yeah
... estimate PPAs cross for.
Yeah. It's too early to say those. So currently, we are focusing, of course, completing these acquisitions. And I already mentioned that the Tissue Converting is now in our numbers and amortizations, and will be EUR 28 million for the coming quarters. But for the others, it's way too early to say.
Finally, then, acquisitions. You have done a lot of acquisitions last year. Now you have, you know, in your kind of history, quite high net debt to EBITDA ratio. Are you still looking for more acquisitions to secure that the earnings can grow even during this tougher period on the EBITDA level? Or are you now kind of, you know, waiting to strengthen the balance sheet a bit before looking for more acquisitions?
I think when we started, our gearing was 0%, then it went up to +20%. So now it's at 40%. So I think we have to work a little bit and pay our debts back, and then we have room for acquisitions. So our track record is that such that we are better in making big enough acquisitions. And then it means that first we have to work with our debt level, and then there's room for acquisition. So currently, we are, of course, actively following all the time the markets, but the main focus is now in making sure that there's good payback of the acquisitions we have done.
And if I may add also that the integration of the acquisitions, it takes a lot of effort, and we historically have been really good at that. And of course, we want to do all the acquisitions the same way, and it requires a lot of work, and the organization is very busy.
Okay, thank you.
The next question comes from Tomi Railo from DNB. Please go ahead.
Hi, it's Tomi from DNB. Feeling a bit desperate, but I try. 2023 cost overruns or inflation impacted impacts. It would be very helpful if you could give any comment on the issue impacting the fourth quarter. Are we talking about some millions or next level levels and maybe also for the full year, just to get any feeling?
This is so difficult that I'll let-
Thank you.
-put you on the ice.
What we can say, of course, is that you see the impact in the numbers. So for the quarter, the profitability or the margin was 4.1%, and for the full year, 4.5%. So of course, you can see the numbers there, but I cannot give you more exact comments on that.
I try it a little bit the other way around. Some years ago there was a lot of talk about quality costs and Valmet's aim and ability to reduce the quality costs. Would you say that the quality costs over the past years have shoot up significantly? Can you help if you could give a number in terms of percentage of sales how much quality costs are these days? And maybe thirdly, if and what kind of actions have you taken to reduce the quality costs?
So quality costs, we haven't announced it now. So in CMD, I think we had the number. I don't remember the number by heart we announced there. Quality costs went by percent a little bit up last year.
Mm-hmm.
But not even close to the levels where they were earlier.
Yeah.
We have quite a lot of work ongoing with the quality and have been have had that all the time. The quality costs, which happened in 2022 and 2023, were quite much COVID-related.
Mm-hmm.
So it was impossible to travel to make quality checks at our sub-suppliers all over the globe. And then some mistakes happened, and then the other COVID-related quality cost source was that when people are working remotely, then sometimes the quality of the teamwork is not as good as when they are in the office. So now when we are back more in a normal situation, then I assume that the quality what we see will reach the levels which we had before COVID, before the COVID impacted the quality numbers.
Right. Thank you.
I'm not a fan of remote work.
The next question comes from Antti Kansanen from SEB. Please go ahead.
Yeah, hi. Thanks for taking the follow-up. Pasi, you mentioned earlier that the backlog has kind of normalized, and the lead times are now back to normal. But when I kind of look at your backlog that stretches beyond the next 12 months, it's basically the similar levels that it was five/six years ago, and obviously, there's a lot of inflation between. You're a much, much bigger company. So is this a concern in the sense that there's increasing pressure to get new business during 2024 as to maintain the workload situation and so forth? And also, in this kind of a demand environment, is it helpful for you guys that the delivery times are shorter? Does it really matter when many of your clients are quite hesitant to invest right now?
Of course, the delivery times matter all the time. So when discussing with customers, once they make the decision to build something, then, of course, they want to have the machine up and running as quickly as possible because then they start to generate cash again. So, of course, it's important, and it was a little bit challenging, and not only a little bit challenging, to explain that it takes three years to deliver a Board machine. So now we are talking about normal delivery times.
Then backlog. Otherwise, I'm still confident with the backlog, and of course, we have to get new orders in, but we still have the workload situation, what we described in the market outlook, which has 50% from the capacity utilization factor and then 50% from the market activity point of view. So, that's the outlook what we have.
Okay, and maybe a quick detailed one on the backlog. On the Services and Automation backlog, you probably don't have much that stretches beyond 24, or what do you include in the Services backlog?
If we are having a long-term contract, then remind me, is it six months?
Yeah, six months, depending on the-
Yeah
... the contract, yes.
Yeah.
Yes.
So we are not put booking-
Mm
... booking the whole contract. So-
Yeah
... so you are right that some of the Services, a big part of the Services has delivery from the backlog of Services has delivered in this year.
Mm-hmm.
The same goes with Automation.
Okay. So I mean, if I just do the numbers, it appears that actually the PT backlog shouldn't imply much sales decline this year, but there should be a big step down, perhaps in 2025, but perhaps this is reading too much into it.
So difficult to comment on your Excel.
Okay. Thank you.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
All right. Thank you for the, for the lively Q&A, and, the next events for Valmet will be the AGM on, March 21, and then the first quarter results of 2024 will be published on April 24. So those are the, those are the next events. Thank you, Pasi and Katri, for the presentations and everybody for the questions, and, it's now time to wrap up this event. So goodbye for now.